Annuity Legacy Planning Tips

Hey, it's Stan The Annuity Man. We're talking about Annuity Legacy Income Planning and talking about death again. Legacy equals death. The motivational stuff that I do, but hey, death is inevitable, right? As a good friend of mine who's in the life insurance business, and I'm not in the life insurance business, he has a saying that's so motivational, that's such a page-turner. He says this. He's six feet eight; I'm six foot six. He's like, "A hundred percent of us are going to die; one out of one of us is going to die." That's fantastic. He's right, and with annuities, we need to plan for that, and you can plan legacy from an income standpoint. Life insurance is the greatest return on investment you'll never see. Why? Because you're dead.

Do I sell life insurance? No. Do life insurance companies issue annuities? Yes, but I don't sell life insurance. Life insurance is fantastic; I have a ton of life insurance on me that I purchased so that my wife and my daughters, when they drive from the funeral, will be singing. It'll be fantastic and that's what will happen. But with annuities, you can plan for legacy income, meaning that you're in the grave or your ashes are smoldering, and your loved ones are getting an income stream. That's pretty cool so let's talk about that.

Brief History

It makes sense that there's annuity legacy income planning. Why? Because annuities are primarily used for income. They were put on the planet in Roman times as a lifetime income stream that guaranteed payments for the dutiful Roman soldiers and their families, and that was the origination of annuities. In fact, the word annua, which is Latin for payment, is the root word for annuity, and that's where it all comes from. From the standpoint of annuity legacy planning, you can do a lot of that. Basic legacy planning is if you have a spouse or partner, you can set up a joint lifetime income annuity. What does that mean?

Legacy Standpoint

With a 100% survivor, that means that when your Lear jet hits the mountain, your Bentley hits the tree, your Ferrari flips, and you die, the money goes poof. When you die and it's joint life, 100% survivor means that your spouse or partner is going to get that income stream continued for the rest of their life, uninterrupted and unchanged, not lowered, the same amount, which is a good thing. That's the basic way of doing income planning from a legacy standpoint.

Another way to do it is if you say, "Okay, forget the lifetime income stream. I want to buy a 30-year period certain or a 20-year period certain." What does period certain mean? That's pretty much what it says. The income stream's going to last for that specific period of time that you choose.

Client Example

Let's give an example. I had a guy the other day who was in his seventies. He goes, "I really don't need the money, but I'd like to set up an income stream. I want to use it while I'm alive, but when I die, I want the income stream to go to my grandchildren." Great. Okay, so we bought a 20-year period certain. Not all carriers will quote that, but a lot did, so he probably is not going to live that much longer, right, four or five years. But let's give that scenario, that example. 20-year period certain, and he lives five years, there are 15 more years of payments that are going to go to the listed beneficiary of the policy; in this case, it was his grandchildren. So, you can have a specific period of time annuity payout, and you can list those beneficiaries. By the way, annuity beneficiaries can be changed at your leisure, at your whim, as many times as you want. If that beneficiary makes you mad, you can remove that person from the policy.

Annuities are contracts, it's legal tender. It passes outside of probate, so it will pay whoever you list. It is what it is, so that is another way to plan legacy income. Still talking about death, there's lots to talk about when we're talking about death and annuities. Let's talk about Deferred Annuities like Multi-Year Guarantee Annuities, Fixed Index Annuities, and Variable Annuities and how those pay at death.

Paying at Death

All policies are different, all carriers are different, and there's no uniformity. Still, if you have this type of accumulation type products, deferred type products, when you pass away your beneficiaries have choices of how they're going to receive that money. Obviously, they can take it in a lump sum as a death benefit, but we're talking about income from a death benefit standpoint.

With some policies, they can take that lump sum in an income stream over a five-year period, which is a pretty good legacy income planning strategy. Also too, some policies allow that beneficiary to annuitize, in other words, create a payment stream for their life with that death benefit and stretch out the tax liability over their life expectancy. Once again, you can dictate that in the policy or you could have a trust as beneficiary of the policy and have those instructions within the trust, there's a myriad of ways to do it. But what I want you to do is, if you own an annuity, start thinking about the death benefit portion and understand what the options are. By the way, you can control it from the grave right now. You're not in the grave now but you will be, right? But it would help if you thought about it now. You need to talk to us. We can come up with that strategy and put it in place contractually so it's going to happen regardless.

Legacy Income Monster

The last one I want to talk to you about is called the Legacy Income Monster. This one is one that I use on occasion with the grandfathers of the world.

I had an 82-year-old grandfather call us recently. He had read some articles on the Legacy Income Monster, and he thought that was pretty cool. He has a four-year-old grandson, he's 82 and his grandson's four, and he wanted to do a joint life Immediate Annuity, a joint life Single Premium Immediate Annuity. Immediate Annuity payments are based on your life expectancy, or in this case, life expectancies, at the time of the payment, and he puts a big lump sum in to fund it. But what the grandfather wanted to do, which is pretty cool, is to set up a lifetime income stream.

He did not want his grandson to get a lump sum. He wanted him to get an income stream that would hit every month. Think about that legacy: if you're out there with grandkids, kids, or whatever that are younger, you can have that monthly income stream hitting their bank account every single month for the rest of their lives, regardless of how long they live. If they hate you, they won't hate you as long as that income starts flowing in. Now, how the Legacy Income Monster works is that the payments are primarily based on that four-year-old or on the younger of the two.

The Two Questions

The annuity company almost doesn't even look at that older life expectancy because it's irrelevant. But for the grandfather, it really did not matter to him, and I thought that was pretty good. Now, there are some nuances that we will have to work with you on how to set up the contract and work with your CPA and lawyers to ensure that all the boxes are checked from an estate planning standpoint. We do that every single time with those types of legacy income plans. But just put it in the back of your mind, with all annuities that I recommend and sell, we go through just a basic two-question scenario to get started. The first is, what do you want the money to contractually do and when do you want those contractual guarantees to start?

From those two questions and those two answers, we then start shopping the annuity type with all carriers for the highest contractual guarantee. Depending on what your legacy plan is from an income standpoint for your beneficiaries, you just have to tell me. I will be straight with you if we can't do it contractually, but I'll also tell you if we can and, if we can, then we can go shop it. Put it in the back of your mind that there is such a thing as legacy income, not just a legacy death benefit for a lump sum, but you can have a legacy death benefit for income.

With that being said, I know this was a little bit complicated, but annuities can be complicated from a strategy standpoint. We will strip all that away from you and work with you one-on-one to create a customized plan for you. I encourage you to go to The Annuity Man, and we will work together to put together that plan. You can also get my books and download them for free. I do podcasts and I write blogs pretty much every day. I'm educating the public out there on all things annuity, but maybe this is a new one for you, legacy income planning using annuities. Think about it and I'll see you on the next Stan The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.